Step-Up Value and Inherited Assets
In last month’s Briefly Noted discussion about the lack of an estate tax, we made an error in discussing the tax basis for selling inherited assets [“The Lack of an Estate Tax,” April 2010 AAII Journal]. Specifically, we said that “inherited property is not ‘stepped-up.’” That was not completely correct.
In this article
- Step-Up Value and Inherited Assets
- FINRA Is Looking for Arbitrators
- Supreme Court Rules on Fees
- Institutional Investors Are Upbeat
- Quick Financial Management Tips
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If property is inherited in 2010 and subsequently sold, the tax basis for calculating any gain is based on two numbers. The first is the price paid by the deceased. The second is a step-up value of $1.3 million. (Surviving spouses are eligible for an additional $3 million, bringing the total step-up value to $4.3 million.)
For example, say the deceased purchased an asset for $10 million and transferred it to his spouse at death. The spouse accepts an offer to sell the asset for $20 million. The tax basis for the asset would be the $10 million purchase price + a $1.3 million step-up value + an additional $3 million step-up value for spouses, for a total tax basis of $14.3 million.
Note that heirs must use the original cost plus the step-up value for calculating the cost basis and this applies only in 2010 and under current law. Previously, heirs could use the fair market value at death for determining the value of an asset.
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